Nations watch Saudi Arabia for any change by oil-production linchpin

PEG MACKEY, Reuters News Service

Published
5:30 am CDT, Sunday, August 25, 2002

DUBAI, United Arab Emirates -- The alliance between the United States and key oil supplier Saudi Arabia has come under intense scrutiny since the Sept. 11 attacks, raising market fears that Riyadh might review its pro-Western oil policy.

The two countries differ markedly over Arab-Israeli violence in the West Bank and U.S. plans to topple Iraqi leadership by force, while conservative factions in Washington have stepped up a campaign to push the oil-rich kingdom into the enemy camp.

But a senior Saudi official said on Friday there was no danger of the world's top exporter abandoning its role as oil market moderator, as opposed to the pursuit of a more radical goal of higher prices, which could destabilize the global economy.

"There is no change in Saudi Arabia's oil policy of maintaining market stability, keeping prices moderate and using our spare capacity judiciously -- it's all for the sake of the kingdom's national economic interest," the official said, asking not to be named.

"We're still maintaining strong ties with the United States, despite the neoconservative campaign, driven by Israeli hardliners, to create a gap between the two countries," he added.

Conservative factions in the United States have orchestrated an increasingly vocal opposition to some non-democratic governments in the Islamic world, notably oil-rich states Saudi Arabia, Iraq and Iran.

Last month, an analyst from the influential Rand Corp. told a Pentagon briefing that Saudi Arabia was an emerging enemy and a backer of terrorism.

"Causing Saudi Arabia to start to raise questions about its relationship with the U.S.A. at this precise juncture does not seem to augur well for the smooth handling of oil diplomacy during some of the potential developments over the next few months," said Paul Horsnell of investment bank J.P. Morgan.

But analysts say the strategic partnership forged over many decades with Saudi Arabia, the birthplace of Islam, will not be easily severed.

Top Saudi decision-makers are well aware of the economic challenges facing the indebted kingdom, the largest oil exporter in the world.

Oil revenues make up around 90 percent of Saudi Arabia's export earnings, 70 percent of government revenue and nearly 40 percent of its gross domestic product.

"The Saudis do not want to see their economy going down the drain, so it is in their best interest to keep the global economy in equilibrium," said a Western oil executive.

While little public comment has emerged about the issue from the secretive kingdom, home to a quarter of the world's oil reserves, a top Saudi diplomat has issued a reminder of the influence it wields on global markets.